Organizing The Business Chapter 6 Organizing The Business Prepared By Mostafa Kamel

Prepared By Mostafa Kamel Learning Objectives Discuss the factors that influence a firm’s organizational structure. Explain specialization and departmentalization as two of the building blocks of organizational structure. Describe centralization and decentralization, delegation, and authority as the key ingredients in establishing the decision-making hierarchy. Explain the differences among functional, divisional, matrix, and international organizational structures and describe the most popular new forms of organizational design. Describe the informal organization and discuss intrapreneuring. Prepared By Mostafa Kamel

Prepared By Mostafa Kamel Chapter Outline What Is Organizational Structure? Basic Forms of Organizational Structure Organization Charts Functional Structure Determinants of Organizational Structure Divisional Structure Matrix Structure The Building Blocks of Organizational Structure International Structure Specialization Organizational Design for the Twenty-First Century Departmentalization Informal Organization Establishing the Decision-Making Hierarchy Informal Groups Distributing Authority: Centralization and Decentralization Organizational Grapevine Intrapreneuring The Delegation Process Three Forms of Authority Prepared By Mostafa Kamel

What is Organizational Structure Prepared By Mostafa Kamel

What is Organizational Structure Organizational Structure: Is the specification of the jobs to be done within an organization and the ways in which those jobs relate to one another. The easiest way to understand structure is in terms of an organization chart. Organization charts clarify structure and to show employees where they fit into a firm’s operations. Prepared By Mostafa Kamel

Prepared By Mostafa Kamel Organizational Chart The solid lines define the chain of command, or reporting relationships, within the company. Some Large organizations includes a more complex relations ships that showed in this figure. This large size prevents them from drawing their organization chart. Prepared By Mostafa Kamel

Determinants of Organizational Structure Numerous factors influence the planning and creating of an efficient organizational structure. Purpose, mission, and strategy, organization’s size, technology, and environmental changes. Most organizations change their structures on a continuing basis. Prepared By Mostafa Kamel

The Building Blocks of Organizational Structure Prepared By Mostafa Kamel

Developing Business Structure The first step in developing the structure of any business, large or small, involves three activities: 1- Specialization. Determining who will do what (breaking down The jobs) 2- Departmentalization. Determining how people performing certain tasks can best be grouped together 3- Establishment of a Decision-Making Hierarchy. Deciding who will be empowered to make which decisions and who will have authority over others Prepared By Mostafa Kamel

Prepared By Mostafa Kamel 1. Specialization To perform one overall job of any organization, managers actually break it down, or specialize it, into several smaller jobs. Job specialization is a natural part of organizational growth. As Organization Grow … Job specialization has certain advantages. Specialized jobs are learned more easily. Can be performed more efficiently than non-specialized jobs. Easier to replace people who leave an organization. Prepared By Mostafa Kamel

Prepared By Mostafa Kamel 2.Departmentalization Departmentalization: Grouping of similar or related jobs into logical units after jobs are specialized. Benefits of departmentalization: Easier Control and coordination. Top managers can see more easily how various units are performing. Allows the firm to treat each department as a profit center— a separate company unit responsible for its own costs and profits Prepared By Mostafa Kamel

Departmentalization (Continued) Types of departmentalization: 1- Product Departmentalization. Organizations are divided according to the products or services being produced. 2- Process Departmentalization. Organizations are divided according to production processes used to create a good or service. 3- Functional Departmentalization. Organizations are divided according to a group’s functions or activities. 4. Customer Departmentalization. This grouping of jobs simplifies shopping by providing identifiable store segments. 5. Geographic Departmentalization. Organizations are divided according to the areas of the country or world that they serve. 6. Multiple Forms of Departmentalization. Prepared By Mostafa Kamel

Departmentalization (Continued) Prepared By Mostafa Kamel

3- Establishment of a Decision-Making Hierarchy The third major building block of organizational structure is the establishment of a decision-making hierarchy. This is usually done by formalizing reporting relationships. However, when the focus is on the overall organization, it becomes a question of decentralization versus centralization. Prepared By Mostafa Kamel

Establishment of a Decision-Making Hierarchy (Continued) Distributing Authority: Centralization and Decentralization Centralized Organization Centralized Organizations In a centralized organization, most decision-making authority is held by upper-level. Centralized authority is most commonly found in companies that face relatively stable and predictable environments and is also typical of small businesses. Decentralized Organizations As a company gets larger, more decisions must be made; thus, the company tends to adopt decentralized organization. Much decision-making authority is delegated to levels of management at various points below the top. Decentralization is typical in firms that have complex and dynamic environmental conditions. It makes a company more responsive to changes. Prepared By Mostafa Kamel

Establishment of a Decision-Making Hierarchy (Continued) Tall and Flat Organizations Tall organizations are multi-tiered, characterized by many layers of employees. flat organizations have few layers of employees. Which type best suit centralized and decentralized organization?? Prepared By Mostafa Kamel

Establishment of a Decision-Making Hierarchy (Continued) Span of Control Span of control : Is the number of people directly managed and supervised by one Manager. In a flat organizational structure, the span of control is usually wide. In tall organizational structure, span of control tends to be narrower. What influences how wide or narrow the span of control should be? Employees’ abilities. the supervisor’s managerial skills. The similarity and simplicity of tasks. The extent to which taskes are interrelated. Prepared By Mostafa Kamel

The Delegation Process Delegation is the process through which a manager allocates work to subordinates. The delegation process involves: Assigning responsibility. Responsibility: is the duty to perform an assigned task 2. Granting authority. Authority: is the power to make the decisions necessary to complete a task 3. Creating accountability. Accountability: Is the obligation employees have for the successful completion of the task For the delegation process to work smoothly, responsibility and authority must be equivalent. Prepared By Mostafa Kamel

Three Forms of Authority Line Authority Organizational structure in which authority flows in a direct chain of command from the top of the company to the bottom Line departments linked directly to the production and sales of specific products Each “line Department” is essential to an organization’s ability to sell and deliver finished goods. Staff Authority Authority based on special expertise and usually involves advising line managers in areas such as law, accounting, and human resources. Staff members help line departments make decisions, but do not usually have the authority to make final decisions. Committee and Team Authority Authority granted to committees or teams involved and plays central role in a firm’s daily operations. Prepared By Mostafa Kamel

Forms of Organizational Structure Organizations can structure themselves in an almost infinite number of ways— according to specialization, departmentalization, or the decision- making hierarchy. Prepared By Mostafa Kamel

Basic Forms of Organizational Structure It is possible to identify four basic forms of organizational structure that reflect the general trends followed by most firms: Functional. Divisional. Matrix. International. Prepared By Mostafa Kamel

Prepared By Mostafa Kamel Functional Structure Under a functional structure, relationships between group functions and activities determine authority. Functional structure is used by most small to medium-sized firms. Usually structured around basic business functions: (a marketing, operations, finance departments). As organizations grow, they tend to move toward one of the other three structures. Prepared By Mostafa Kamel

Prepared By Mostafa Kamel Divisional Structure Is an organizational structure in which corporate divisions operate as autonomous businesses under the larger corporate umbrella . Divisional structure relies on product departmentalization. Example: Johnson & Johnson organizes its company into three major divisions: “consumer health care products”, “medical devices and diagnostics”, and “pharmaceuticals”. Each major division is then broken down further. The consumer health care products division relies on product departmentalization to separate baby care, skin and hair care, topical health care, oral health care, women’s health, over-the-counter medicines, and nutritionals. Prepared By Mostafa Kamel

Prepared By Mostafa Kamel Matrix Structure Organizational structure Created by superimposing one form of Structure onto another. A combination of two separate structures. This highly flexible and readily adaptable structure was pioneered by NASA for use in developing specific space programs. Prepared By Mostafa Kamel

International Structure Approaches to organizational structure developed in response to the need to manufacture, purchase, and sell in global markets Prepared By Mostafa Kamel

Organizational Design for the 21st Century As the world grows organizations also continue to seek new forms of organization that permit them to compete effectively. The team organization: Team organization Relies almost exclusively on project-type teams, with little or no underlying functional hierarchy. People float from project to project as dictated by their skills and the demands of those projects. The virtual organization: virtual organization has little or no formal structure. Typically, it has only a small number of permanent employees, and a modest administrative facility. As the needs of the organization change, its managers bring in temporary workers, lease facilities, and outsource basic support services to meet the demands of each unique situation This structure would be applicable to research or consulting firms that hire consultants based on the specific content knowledge required by each unique project. Prepared By Mostafa Kamel

Prepared By Mostafa Kamel Virtual Organization Prepared By Mostafa Kamel

Informal Organization Prepared By Mostafa Kamel

The informal Organization: The informal Organization: Is a Network, unrelated to the firm’s formal authority structure, of everyday social interactions among company employees. Good managers recognize that the informal organization exists whether they want it or not and can use it not only to: Reinforce the formal organization but also Harness its energy to improve productivity. Intrapreneuring: process of creating and maintaining the innovation and flexibility of a small-business environment within the confines of a large organization. Prepared By Mostafa Kamel